Renovation Loans: Are they available?

Want to buy a fixer upper?
Are you looking for a home and can’t find something that specifically meets your needs or you find a home that has some obvious work that needs to be done? You will need to address this up front with your lender and your realtor.
There are some loan programs that will allow for improvements, however, many loan programs will not. If your lender allows for that you will need to check on what the terms are for their program. I want to talk about the latter and when a lender won’t allow for it.
Here are a couple of examples:
  • You find a home that is newly built, however there are some items that still need to be completed. In this scenario these items will likely need to be done prior to a closing. Ideally the work is nearly done or completed within a short period of time after the offer is accepted. If the work is not done and the appraisal is ordered you will likely have a “subject to” on the appraisal for the work to be finished. This will mean that the appraiser will need to go back to the property and re-inspect it to satisfy their requirement. The appraiser is typically going to charge an additional fee for this. This can be time consuming in some cases and should be taken into consideration when looking at what your closing date will be. There may be some situations that the work cannot be completed due to weather, time of year etc., you will need to discuss this with the lender and see what your options are.
  • You find a home that has some floor boards missing or electrical panel covers that are not on and there are exposed wires – these are items that need to be fixed prior to closing and either paid for by the buyer or seller. The present a “safety and sound” issue and will likely come up on the appraisal as a “subject to”. The bigger challenge in this scenario is that the seller may not be willing to pay for it and/or may not want a contractor in the home before they close. On the buyers side paying for work to be done before you own the home is a risk. You will want to have this negotiated into your contract up front in order to avoid issues later.
These examples present extremely important details that you need to share with your lender and have to be taken into consideration when negotiating a contract. These are only a couple of examples, however anytime there is work to be done or work being requested it may impact the loan. Addressing this up front will prevent headaches later!
Doctorloanprograms.com provides a comprehensive collection of lenders offering a Physician Loan Program in your state. Make sure to review program features to determine which lenders offer a renovation option.